How Sales and Discounts Can Hurt Your Retail StoreIt may seem like a great idea to run regular sales and promotions, but if done incorrectly, it can hurt your bottom line.
Retail shops are constantly running sales and promotions, discounting products, sending out coupons and letting customers use promo codes at checkout.
Having a sale can help your store attract new customers, cultivate current customer loyalty, build brand awareness and boost sales, but discounting your products can also hurt your bottom line. Whether you operate a big-box store or a mom-and-pop shop, running a sale incorrectly can lead to a loss in revenue.
The following are a few downsides of putting on a sale, along with advice on how to avoid these issues and ensure your store’s promotions are profitable and effective.
Sales may undervalue your brand
Imagine you own a high-end clothing store. Your brand is all about luxury, and your products are expensive. If you are constantly discounting your merchandise, your brand image will become diluted and customers think less highly of your products.
“Customers don’t expect you to undersell your products,” said Amy Kilvington, marketing executive at Blinds Direct. “If you don’t consider the discount and length of promotion carefully, people might start to doubt the true value of your brand.”
You’re not leveraging them to gain new customers
What’s the point in running a sale if you don’t ask the customer for anything in return? Promotions should be used as a lead generator, targeted to bring in new customers and make more money off of them in the long run — but too often, they’re not.
According to Clair Belmonte, founder and CMO of Belmonte Marketing, many business owners will announce a sale by buying online ads, “pushing money to an indiscriminate or unspecified audience, and have no way to collect emails from people who visit but don’t buy.”
Instead, run smart promotions that grow your email list for future marketing efforts. Belmonte suggested gamifying sales and discounts with a “discount wheel.” Have customers spin a wheel either in-store or online to “win” a deal — all you ask for in return is an email address.
“This technique is particularly valuable for holiday promotions where you are competing for attention against other retailers in your field,” she said.
Promotions don’t always foster loyalty
Sometimes, people only shop at stores because they are offering a sale or promotion and have no plans to return (unless they can get another discount). If you run sales too often, you are more likely to attract these uncommitted shoppers who are never willing to pay full price.
“Appealing to these short-term bargain hunters may not be the most sensible approach as it could result in missing or alienating potential long-term customers,” said Kilvington.
How to hold a sale the right way
Before you start your promotion, think about why you are offering a deal and what your goals are. You may want to build brand awareness, increase revenue or clear out your inventory.
Marketing manager for Maple Holistics Nate Masterson said, “While it may seem obvious that the end goal of any promotional campaign is to ultimately generate more sales, sometimes simply informing the relevant consumers is a worthwhile goal unto itself.”
For example, if you’re trying to increase sales, Masterson recommended setting a metrics-based goal. Set a specific target for how much money you want to bring in over a certain period of time based on your marketing costs.
“This will help to give you a simple and definite example of whether your promotion or sales pitch has been successful or not,” he said.
Also plan your sales around key seasons and holidays. The best time for sales is at the end of the year during Christmas, Hanukkah, Kwanzaa and New Year’s, or around other national holidays such as Labor Day, Mother’s Day, back-to-school season and Easter.
“There is a definite correlation between sales success and seasonality,” said Kilvington. “The most effective time for you will depend on the nature of your product, of course.”
Belmonte suggested a different strategy, and encouraged businesses to put on smaller sales throughout the year “to surprise and delight customers. This is an area of your business where year-to-year consistency doesn’t serve you, since you don’t want your customers to wait for a sale to buy. Store anniversaries are a great time to do an unexpected promotion that reconnects your customers to your brand story.”